August 14 2012 Bunkers: a timely warning to time charterers Piper Alderman | Litigation - Australia Litigation FactsDecisionPrevious casesCommentA recent Federal Court case involved a time charterer that lost all the bunkers it had paid for to the vessel's owner, who used it to settle a debt with another time charterer further up the line. The court suggested this would not have happened if a retention of title clause had been inserted.FactsDaebo v Go Star involved a string of five contracts. Go Star (the shipowner) time-chartered a vessel to Breakbulk, who did the same with Bluefield, which did the same with Daebo, which did the same with Nanyuan. Daebo then asked Nanyuan to pay for the bunkers (approximately US$465,000) and hire. In the meantime, Go Star decided that it would withdraw the vessel as Breakbulk was heavily in arrears, and warned Nanyuan not to pay Daebo. Go Star subsequently withdrew the vessel and retained possession of Daebo's bunkers to offset what it was owed by Breakbulk. Daebo was understandably aggrieved by this and commenced proceedings in the Federal Court, seeking recovery of the value of the bunkers.DecisionDaebo lost the proceedings. In their charterparty with Nanyuan, the parties agreed that Nanyuan would be 'taking over' the bunkers on the delivery of the vessel. Lord Diplock of the UK House of Lords (as it then was) stated that:"the words: 'take over and pay for' and the references to price, seem to me to be wholly inconsistent with the property in the bunkers being vested in anyone other than the charterers. The words I have italicised would otherwise be meaningless".(1) (emphasis in original)Justice Siopis of the Federal Court agreed with The Span Terza (2), in which charterers cancelled their time charter when the vessel was arrested due to monies owed to third parties by the owners. Lord Denning referred to the charterer's retention of title clause over the bunkers and this gave the charterers a right to proceeds from sale over the bunkers, because the charterers were the bunker's true owners.Siopis went on to say that Daebo could have protected itself similarly by inserting a Romalpa clause (ie, a clause detailing retention of title until payment), stating that "property of the bunkers was to remain with the disponent owner until payment was made";(2) without this explicit clause, one could not be inserted by the court.More guidance may be received shortly as to whether this will be effective, especially under the new Personal Property Securities Act (which still has scant reference to its treatment of claims under maritime and admiralty law), when the Full Federal Court sits on the appeal of this matter.A number of other dangers face bunker owners, and courts have often considered Romalpa clauses as a form of protection. Below are the main Federal Court cases on bunkers from the last 15 years.Previous casesIn OW Bunkers(3) Justice Mansfield said that bunkers "are commonly the property of the charterers"(4) and stated that since the mortgage holder did not specify that bunkers were part of their security in the mortgage document, there was no ground by which the mortgage holder could claim them.In Scandinavian Bunkering(5) Justices Ryan, Tamberlin and Kiefel held that a 'ship', which is a term that was said by Ryan to include a vessel's bunkers, if performing illegal fishing activities, could have its bunkers taken by the government, without a right to claim them back.In Metall(6) Justices Lee, Tamberlin and Allsop held that bunkers cannot be arrested in connection with a general maritime claim if the bunkers themselves are unconnected or unconcerned with that particular claim. This provides slightly more protection to bunker owners.In Fortis(7) it was held that the charterer had property in the bunkers that it brought on board and if the charterparty was terminated, the ship owner would reclaim the bunkers as bailee of the bunkers (not owner of it) and would need to repay the charterer in line with the general rule (see The Span Terza (2) above). When the vessel was arrested, the marshall (who arrests the vessel) consumed some of the bunkers. This consumption had to be repaid before the vessel was released from arrest, as it was not used for the benefit of the bunker's owners.In Patrick Stevedoring(8) Justice Tamberlin reiterated the importance of the Romalpa clause, but nevertheless implied that charterers will generally have ownership of the bunkers that they pay for; the actual claim for bunkers failed for lack of evidence.In short, property in bunkers tends to be the property of the sub-charterers that are furthest down the line of charterers. However, this is subject to the many caveats summarised previously.As a general warning, sub-time charterers should be very wary of charters further up the line, especially the first charterer, as that is the only person that has a contractual relationship with the shipowner.CommentThe law is unclear when it comes to protecting bunkers. The best protection is to bunker with only enough bunkers to last each section of the journey, though in many cases this will be unrealistic. At the very least, charterers should insert a Romalpa clause in their charterparty.For further information on this topic please contact Quintin Rares at Piper Alderman by telephone (+61 2 9253 9999), fax (+61 2 9253 9900) or email ([email protected]).Endnotes(1) The Span Terza (2)  1 WLR 27 at 31-32.(2) Daebo v Go Star at 78.(3)  FCA 1139.(4) Ibid at 23.(5) 151 FCR 126.(6) 145 FCR 145.(7)  FCA 524.(8)  FCA 1013.